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Home >News >India >Finance Act lays ground for tax free merger of IIFCL and NaBFID

NEW DELHI: The Finance Bill, 2021, passed by the Parliament earlier this week with amendments, has laid the ground for the merger of existing infrastructure lender India Infrastructure Finance Company Ltd. (IIFCL) and the proposed state-owned National Bank for Financing Infrastructure and Development (NaBFID) without any tax liability.

As per an amendment to the Bill introduced at the time of passing, the transfer of a capital asset by IIFCL to an institution set up under a law for financing infrastructure and development is exempt from capital gains tax. This is done by extending the benefit under section 47 of the Income Tax Act which excludes specified transactions from the scope of capital gains tax.

Another related amendment offers the same benefit of capital gains tax exemption to other similar transactions which are approved by the central government. As per this, transfer of capital asset by a public sector company to another state-owned company notified specifically for this benefit or to the Central or state government would be exempt from capital gains tax.

This tax relief to transactions among state-owned companies assumes significance given the ambitious Rs1.75 trillion disinvestment target for FY22.

At a press briefing on 16 March, financial services secretary, Debasish Panda, had said the new development finance institution--NaBFID--will decide later the possibility of acquiring or merging with any other institution.

The capital gains tax exemption makes the transaction easier for the central government by eliminating the need for one state-run entity to pay tax to the government in acquiring another.

NaBFID will also get a ten-year tax exemption on the income it earns from financing infrastructure projects. Similar private lenders will get five-year tax break which can be extended by a maximum of five years subject to riders, as per the Finance Act.

The statutory framework for these infrastructure lenders are designed to meet the requirements of quickly financing a large number of projects. It offers protection to officials for actions done in good faith, a move aimed at encouraging quick decision making. No suit, prosecution or other legal proceedings will be taken against the institution or its chairperson or other directors, employees or officers for anything which is done in good faith, the Bill says.

The Narendra Modi administration is attempting to steer the economy by building roads, highways and airports. At present, there is a pipeline of around 7,000 projects with a project cost of around 111 trillion.

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